The market may be hitting all-time highs, but these stocks are way, Just because a company has a dividend does not always mean that the company is a desirable investment. While every company can hit rough patches, companies with dividends, especially high-yield dividends, can see their share prices drop big time if there is a whiff of trouble that could lead to an eventual cut to its payout. 2016 had its fair share of lousy dividend stocks, but here are the five that were real stinkers this past year, why they did so poorly, and whether they present any kind of investment opportunity for investors that want to scrape the bottom of the value barrel. With the exception of StoneMor Partners, all of these companies are deeply tied to the oil and gas industry in some way or another.
While the decline in oil and gas prices and the reverberations it has sent through the entire industry did likely have an impact on the commodity companies on this list, there were bigger issues that caused their share prices to crater. An oversupplied market hitting at just the wrong time In December 2015, Teekay Tankers announced a new dividend policy in which it would pay out 30% to 50% of its quarterly adjusted net income, with a minimum dividend payment floor of $0.03 per share. At the time of the announcement, it looked like investors were going to cash in big time, as the new policy led to a 400% increase in its dividend from the prior quarter.
The problem for the company, though, was that the market for oil tankers deteriorated throughout this past year. Several new oil tankers came online this year while overall oil demand wasn’t as robust as anticipated, which led to an oversupply of tankers. As a result, the company’s dividend payment dwindled in each proceeding quarter until Teekay Tankers’ most recent dividend was back at its $0.03-per-share floor. Not all news was bad news this past year, though. While the operating environment has been tough for the company, its dividend policy did free up some cash that allowed Teekay Tankers to reduce its total debt load by 17% in 2016 to $966 million.
The company is far from out of the woods, but it’s encouraging to see the company clean up its balance sheet in the middle of such a tough year. A high place from which to fall Alon USA Partners is an interesting case. Typically, a master limited partnership subsidiary of a refining company would own logistics and storage assets. Instead, parent company Alon USA Energy (NYSE: ALJ) spun off one of its refineries and some wholesale marketing assets into the partnership. Since refining is such a volatile business, the company was set up as a variable rate partnership, so its payout changes from quarter to quarter based on business performance.
2015 was a great year for refining in general: The fall of crude oil prices from 2014 through the beginning of 2016 led to higher refining margins and, as a result, high payouts to investors under this variable rate structure. After oil prices started to bottom out in the first quarter of this year, though, so went refining margins. As a result, Alon wasn’t able to generate enough cash for a distribution in the first quarter. To add insult to injury, the parent company has been offered a buyout from refining company Delek US Holdings . Delek already owns 48% of parent company Alon, so it won’t be a surprise if the deal goes through.
The problem, though, is that it casts a lot of uncertainty over Alon Partners’ future. The death of a (funeral home) salesman I’ll admit that I was completely wrong on this stock. StoneMor’s business of funeral homes and burial services is one of those businesses with a pretty built-in demand. Unfortunately, the company’s sales team wasn’t up to snuff and it has been a drag on StoneMor’s results for several quarters.
I personally thought that these issues were temporary and that it would be able to overcome them without a large cut to its payout. That certainly wasn’t the case, as the company announced back in October that it was slashing its payout in half, and it even hinted at another cut in the coming quarters because it needs to basically retrain and use recruiting agencies to find new talent. If this were the only issue, then it may not be too much of a problem as the company brings new people to fill its sales needs.
Longer-term, though, the trend away from traditional burial in lieu of cremation could be a big profit-killer; margins for cremations are considerably lower. It’s worth at least watching this stock over the coming quarters to see if it can start to turn things around, but for the time being, watching may be the only thing to do. Too many bad decisions led to too much debt The seeds of Calumet’s eventual payout suspension and sharp share-price decline were planted years ago. Back in 2012, the company went on a spending spree and loaded up on debt to make several acquisitions.